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The first release of British GDP comes after a quarter of contraction and draws a lot of attention. Did Britain slip into recession? This release will rock the pound. Here’s an outlook for this event and 5 possible outcomes for GBP/USD.

The first, preliminary release of Britain’s Gross Domestic Product will happen on Wednesday, April 27th, at 8:30 GMT. Two days before the cheerful royal wedding, we’ll get to know if Britain fell into a second double-dip recession.

The chances are slim – purchasing managers’ indicators that were published in recent months have shown that all sectors are growing. Manufacturing was temporarily better than the services and construction sectors, but also it had some glitches.

On the other hand, the GDP release was quite a shocker. Bad weather was blamed for the astonishing contraction of 0.5% in Britain’s economy. But even without the snow, there are doubts if the economy would have grown. Expectations then stood on growth of 0.5%, so it was a total surprise.

Inflation has risen at first, but has slowed down in March. Together with a drop in consumer confidence, this could lead to another disappointment. Two consecutive quarters of contraction are officially defined as a recession.

So, any kind of surprise can happen now. Expectations for the first quarter of 2011 stand on a rise of 0.5%, a correction for the Q4 2010 contraction.

Sentiment and Technical Levels

The British pound managed to escape the long range trading, and broke higher against the dollar. Note that this rise is mostly due to the extreme weakness of the greenback. The sentiment is slightly pound bullish. The reaction may be relatively muted as the tensions mount toward the US rate decision with Bernanke’s press conference.

Technical levels, from top to bottom: 1.7042, 1.6843, 1.67, 1.66, 1.6515, 1.6450, 1.64, 1.63, 1.6110, 1.60.

5 Scenarios

  1. Within expectations: +0.4% to +0.6%: GBP/USD shakes and eventually moves higher, with a slim chance of breaking above resistance.
  2. Above expectations: +0.7%-0.9%: The pound enjoys a relief rally, and has an excellent chance of breaking above resistance.
  3. Well above expectations: 1% or higher – the return to the happy days of Q2 2010 will send the pound higher, with a good chance of breaking more than one line of resistance.
  4. Below expectations: +0.1% to +0.3%: GBP/USD loses ground with a small chance of losing some support on sluggish growth.
  5. Well below expectations: 0% or lower – a double dip recession – In this case, which seems extreme but cannot be ruled out after the previous quarter, the pound falls and has a chance of losing more than one level of support.

For more events and technical analysis for the pound, see the GBP USD Forecast.